Strong demand drives global investment in Croatia

Valamar Family Life Bellevue Resort. Photo credit: Valamar Riviera

It's shaping up to be a good year for Croatia’s hospitality sector. Prime hotels in the country recorded a yield of 6.5 percent last year, and Colliers International expects that yield will rise even more in 2018.

Existing investors and market newcomers—predominantly local ones—have expressed strong demand for hotels in Croatia, with observers calling for structural change in the country to further bolster the hotels sector.

Strong Demand

Retail and hotel sectors recorded the highest investment volumes in the Croatian commercial property market in 2017, with Colliers International recording more than €320 million invested over 22 properties. The company said that it expected investment volumes in 2018 to exceed the 2017 level. 

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Demand was strongest for income-producing retail and office properties in Zagreb, followed by demand for hotels on the coast, with the group anticipating that yields would remain stable or slightly increase in 2018.

According to the Croatian Bureau of Statistics, Croatia saw 17.4 million tourist arrivals in 2017, up 12 percent year-on-year. Overnight stays increased 10 percent year-on-year to a record 86 million. 

Last month, Valamar Riviera, one of the country’s hotel owner/operators, accounted for 12 percent of Croatia’s tourist accommodation, reporting 20 percent more overnight stays last year, while accommodation revenues increased 23 percent to Kuna1.4m (€190,000). In addition to the rise in visitor numbers, the company attributed the increased revenues to renovations within the estate. 

“Valamar continually invests in developing its destinations and improving the quality of its products, salaries and work conditions in hospitality,” said Željko Kukurin, CEO, Valamar Riviera. “Croatian tourism has the opportunity to offer high-end products and services, added value and top-quality jobs.”

Colliers International described Valamar Riviera as having made the largest investment in the Croatian tourism sector last year, opening two resorts in Rabac, Istria: Valamar Family Life Bellevue Resort and Valamar Girandella Resort, with a total of 764 guestrooms across the four- and five-star sectors.

Colliers said that it expected to see “large” investments in the hotel sector in the coming years, predominantly in four- and five-star hotels, with owners of two- and three-star hotels expected to continue upgrading their hotels to higher categories.

Global Investors

Investment has not been restricted to domestic players. German tour operator TUI purchased 50 percent of Punta Zlatarac Tučepi company from Tučepi Hotels, part of Sunce Group, for €31.5 million in the second half of last year. Punta Zlatarac owns and operates the 161-guestroom TUI Blue Jadran.

“The yields in our market are already considered attractive from overseas investors, given they are above the yields on the core markets,” said Klara Matić, senior consultant, investment, valuation and advisory services, EMEA, Colliers International and the report’s author. “What could be changed to attract more investors and developers in Croatia's hotel sector and investments and developments in general are changes like: reducing red tape, increasing the efficiency of the public sector, speeding up the judiciary system, reducing taxes and aligning the land registry books and the cadaster (an official register showing details of ownership, boundaries and value of real property in a district, made for taxation purposes).
“There are still many opportunities for investments and developments in our market as the supply of hotels does not meet the demand. There are opportunities for the brands; however, the local players who own large market share still prefer to operate under their own brands. Therefore, the easiest way in for global brands is to either partner up with investors or invest themselves.”

As yields compress in the more developed markets in Europe, it is likely that the more adventurous investors will look to ways to overcome the issues in search of returns. 

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.